Washington -- U.S. and foreign governments alike are grappling with the problem of balancing commercial and security interests in regulating trade in encryption technology, says William Reinsch, U.S. under secretary of commerce.

"My gut feeling is ... five years from now there'll be some sort of multilateral consensus on how to deal with this because government interests are not that different one to another," Reinsch said in an April 17 interview.

"But right now we're at a very awkward stage where we could go in any one of three or four completely different directions," he said.

Existing U.S. law prohibits exports of encryption technology above a certain level; the technology includes electronic keys to unlock coded communications.

Reinsch said a Commerce Department study rebutted industry complaints that U.S. export controls have encouraged foreign production of very sophisticated encryption products.

"Other governments ... in a number of cases are coming out with policies more restrictive than ours," Reinsch said. France, for example, simply prohibits imports of encryption technology, he said.

"As other governments look at the issue what you find is the same thing we find here, which is an effort to balance domestic law-enforcement considerations with trade and export considerations," Reinsch said. "And everybody's having a tough time balancing it."

Different bills introduced in Congress would relax U.S. controls to allow exports at whatever level of technology is available for sale outside the United States.

The bills would not require the key escrow system being pressed by the Clinton administration, in which a third party would hold copies of all electronic keys for use by the government under narrowly defined circumstances for law-enforcement and national-security surveillance.

The administration has been meeting irregularly with U.S. industry officials trying to work out a compromise, Reinsch said.

"We're not there yet," he said. "There's been some progress."

He expected the administration to put a new proposal out to the industry group in the next few weeks.

One issue concerns the need for multilateral agreement because under a third-party system, any government would need access not only to electronic keys held within its own borders but also to keys held in other countries.

"There are no formal multilateral understandings," Reinsch said. "It is an issue that more and more foreign governments are starting to think about on their own, and there are conversations between us and them."

He did not elaborate on the nature of those discussions but did say he viewed multilateral convergence as a real possibility.

"It is not by any means out of the question that at the end of the day -- and I don't know when that is -- all the developed countries in the world could end up adopting a system that's not much different from ours" with a trusted third-party escrow system, he said.

On a related issue, Reinsch said multilateral consensus on all kinds of export controls is getting tougher to achieve since the end of the Cold War.

One striking example of that was the April collapse of talks on starting up the Wassenaar Arrangement for controlling exports of advanced technology and conventional arms to pariah states.

Russia has been blamed for the collapse by rejecting a rule against undercutting to which all 30 other participants agreed. The rule is: When one participant notifies the others it has rejected a proposed export, then any other participant must notify the others if it plans to approve the same export. Russia wants to notify only after delivery of the export.

"The frustration has been with the Russian response. What the Russians didn't want to do was be bound by a timely no-undercut rule," Reinsch said. "It would turn our denials ... into a road map of market opportunities for the other members: 'Ah there's a country not getting an American item -- maybe we can sell them a Russian item.'"

Reinsch said he did not know if President Clinton would discuss this issue with President Yeltsin when the two meet in Moscow later this week. The Wassenaar Arrangement participants will meet in July to try to start again.

Reinsch cited the Nuclear Suppliers Group as a multilateral nonproliferation regime that works well.

"I think there really is a global consensus that nuclear materials and materials used to build nuclear weapons are serious business," he said.

On chemical weapons and advanced technology, he said, multilateral cooperation against proliferation has been harder to achieve.

"The economic consequences of not doing business with a country like Iran are not de minimus, even for us," Reinsch said. "There are real costs. Now we've been prepared to bear those costs. There's a persuasion job to do with the rest of the world to bear the costs as well."

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